The cryptocurrency market offers opportunities to make money every day. For example, it is possible to trade on bitcoin fluctuations, which can amount to about 10% per day. Other options offer much higher income, but also high risks. Here you will learn how to choose a project with good potential and reduce the risk of losing all your money.
Trading with Large Leverage and Options
One of the surest ways to earn hundreds of percent in a single trade or lose everything on it is to trade with leverage. Many exchanges, such as Bitmex, BINANCE Futures, OKEx and others, allow clients to borrow money against their assets. The size of the loan and risks are determined by the coefficient, the value of which starts from 1 and reaches 100, rarely exceeding this value.
It works in the following way. The trader temporarily gives the exchange, 1 dollar as a deposit and, having selected the leverage ratio of 100, receives in return 100 dollars. This is used to automatically buy the cryptocurrency. If its price goes up by 1%, the user receives 100% profit. If the asset becomes cheaper by 1%, the platform closes the deal and takes both the issued funds and the deposit.
Investing in DeFi tokens
Another surefire way to multiply or zero in on capital is investing in decentralized finance (DeFi) cryptocurrencies. This sector is booming in 2021. Many DeFi tokens, have now shown growth of thousands of percent. An example is the Yearn Finance (YFI) platform token. It was released on July 18, 2020 and was worth $32 at the time. It's now worth $65,000.
There are many such examples. The Unitrade token (TRADE), which appeared on August 5, 2020, went from $0.11 to $2.6, but then fell in price to $0.54. The UMA (UMA) coin, released in late April, saw a rise from $0.3 to $24. The price of the cryptocurrency Ocean Protocol (OCEAN) rose from $0.03 to $1.16 over the same period.
A hype has formed around the DeFi sphere, so even one successful purchase of a DeFi token can multiply the investment. But the probability of losing on it is much higher than the chance of getting lucky. For one thing, there are now an awful lot of decentralized projects. Therefore, users' capital, which used to be allocated to a limited number of assets, now accounts for thousands of projects.
Secondly, along with the hype in this area came scammers. And there are considerably more DeFi tokens issued by them than real projects. After the incredible rise in the price of YFI, many users have decided that DeFi Coins should try to buy as soon as possible, before the public is aware of it. This has created a demand for services that allow you to be the first to know when a new DeFi token is released.
Most of these coins first appear on the Uniswap exchange. Services like Astrotools.io or Dextools.io allow you to monitor in real time how new projects are added to the site. On the one hand, this gives traders the opportunity to buy coins as soon as they appear, hoping for multiple growth.
On the other hand, there is no strict listing procedure on Uniswap. Anyone can issue a token and add it to this exchange. That's why scammers take advantage of traders' hunt for new projects and try to "slip" their coins, which have absolutely nothing behind them. This is probably the reason why, according to Astrotools.io and Dextools.io, new cryptocurrencies appear on Uniswap literally every 5 minutes. Often, it's not even done by humans. Fraudsters create special programs that automatically issue tokens and add them to Uniswap and other decentralized exchanges.
The size of the risk and possible income from the hunt for new DeFi projects is demonstrated by the example of the HotDog token. It was released on September 2 and rose from $5 to $6,200 in one day, and then dropped to almost zero within minutes. Another example is the SAVE coin. On Sept. 14, its rate soared more than 500%, to $5,000, after YFI's creator announced about the project in his Twitter account. The very next day, SAVE was worth about $300.
There are several criteria that increase the likelihood of selecting a token with good potential. The first is limited emission. The lower the asset's value, the higher its price can be. For example, the fact that there are only 30,000 tokens has been a key factor in the rise of YFI. But the emission itself does not guarantee a rise in the price of the cryptocurrency. On the contrary, many fraudulent projects issue exactly 30k coins to make inexperienced traders believe that this is the new YFI.
The second is product availability. If a project has released an application or platform, as its popularity grows, more and more users will become aware of that coin. This makes it likely to rise in price in the future.
The availability of the product also increases the chances that the token will be added to trading platforms. This is the third and probably the most important criterion for selecting DeFi projects. After listing on exchanges, DeFi-coins show rapid growth. The reasons: more users get the opportunity to invest in cryptocurrency, also the addition to the exchange gives more reason to assume that the project is not nothing.
However, it is usually too late to buy DeFi tokens after they have been added to the major trading floors. As a rule, the listing on Coinbase, Binance, and other industry giants coincides with the peak price of such coins. Therefore, the chance of making money investing in DeFi tokens is higher if you buy them after they appear on smaller trading floors, expecting the market leaders to pay attention to them.
"Profitable Farming."
The DeFi sphere offers another way of risky earnings - "profitable farming". It works as below. The user makes a deposit to the platform in a cryptocurrency such as Ethereum. Interest is paid on this deposit, but in another cryptocurrency - the project's native tokens. In this way, the "farmer harvests". The resulting coins can then be sold to lock in a profit.
"Profitable farming" is very popular right now.The reason is the sometimes huge rates on deposits. In the early days of DeFi-platforms often offer returns of thousands of percent per annum. For example, the Spaghetti Money project allowed users to earn up to 35,000% per annum in bitcoin in the first days of operation. Project Sushiswap - more than 2000%. And these are normal figures for the sector.
Such bets make you suspicious. And indeed there are a number of nuances. First, the amount of profitability depends on the number of users - the more there are, the fewer tokens will be per "farmer".
Secondly, the key role is played by the price of the coin in which the "harvest" is "harvested". As a rule, on the first day after the launch of the app, the price is high. But as soon as users start receiving payouts, they sell tokens, and their value drops. This has a corresponding effect on deposit rates.
Third, most DeFi-platforms are launched without passing code audits. This means that the protocol may work with a critical vulnerability, and there is a risk for users to lose money. For example, Yam platform was launched on August 12, in the first 24 hours users deposited more than $500 million in cryptocurrency. The next day, the developer of the project reported the discovery of an error in the code. Within half an hour after that, the price of Yam token fell from $167 to $1.
Fourth, scammers. They come up with various ways to trick users and steal their money. One example is that they put a very high withdrawal fee in the platform's code. For example, to deposit cryptocurrency for "harvesting" you have to pay $30-50, and to withdraw - more than $1000. Another example is that attackers, enticing users with high stakes, may try to sell them their tokens that have no intrinsic value.
Project Kimbap offered a return of 1000% if the platform's native token was used for farming. The user bought it for $5,000 and deposited it. The next day, the price of the coin dropped more than 100 times. This outcome was to be expected as other traders were "harvesting" in this coin and selling it to realize profits.
Commissions should also be taken into consideration. The cost of one transaction in the ETH network due to the rapid growth of the popularity of DeFi has increased dozens of times - up to $6-10. It became even more expensive to conduct smart contracts, the use of which is necessary for farming - $30-50.
The increase in commissions has presented "farmers" with a difficult choice. On the one hand, they need to allocate a fairly large amount to this strategy in order to reduce the weight of the commission. On the deposit/withdrawal alone, they can lose about $100. On the other hand, you have to deposit money on the platform in the first days of its launch in order to get a substantial income. And it is extremely risky to do it with unverified, unaudited projects.
Qiao Wang, a former product manager at analyst firm Messari, called DeFi tokens "the investment opportunity of the decade. He believes that not taking this chance is like not buying bitcoin in 2013 or Ethereum in 2015. However, there is a lot of "garbage" in this industry, so it is crucial to choose projects that develop a real product and have a fundamental basis for growth.
